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Apogee (APOG) Up 14.5% Since Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Apogee Enterprises, Inc. (APOG - Free Report) . Shares have added over 14% in the past month outperforming the market.

Will the recent positive trend continue leading up to their next earnings release, or is the stock due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Apogee Earnings & Revenues Miss Estimates in Q3

Apogee Enterprises reported earnings per share of 78 cents in third-quarter fiscal 2017 (ended Nov 26, 2016), up 24% from 63 cents in the prior-year quarter. Further, earnings fell short of the Zacks Consensus Estimate of 79 cents.

The company reported total revenues of $274 million, which grew 15% year over year. Moreover, revenues missed the Zacks Consensus Estimate of $277.5 million.

Cost of goods sold went up 14% year over year to $201 million. Gross profit improved 17% year over year to $72.9 million. Gross margin expanded 40 basis points (bps) to 26.6%. Selling, general and administrative (SG&A) expenses increased 15% year over year to $39.6 million. Operating income jumped 19% year over year to $33 million. Operating margin was up 40 bps year over year to 12.1%.

Segment Performance

Revenues at the Architectural Glass segment increased 25% year over year to $107 million. Operating income in the quarter surged 40% to $11.7 million from $8.4 million in the prior-year quarter.

Revenues at the Architectural Services segment rose 5% year over year to $64.4 million. The segment reported an operating profit of $4.9 million, up 33% from $3.7 million in the year-ago quarter.

The Architectural Framing Systems segment’s revenues grew 19% year over year to $90.9 million led by volume growth along with improved pricing and mix. The segment’s operating income was up 28% to $11.8 million from $9.2 million in the prior-year quarter.

The Large-Scale Optical Technologies segment’s revenues declined 9% year over year to $22.1 million. Operating income in the reported quarter was $5.9 million, which fell 22% from $7.6 million in the year-ago quarter.

Financial Position

At the end of fiscal third-quarter, Apogee had cash and short-term investments of $97.1 million compared with $90.6 million as of fiscal 2016 end. The company generated cash flow from operations of $70.5 million for the nine-month period ended Nov 26, 2016 compared with $86.2 million in the year-ago period. During the third quarter, Apogee paid cash dividends of $3.6 million and repurchased 250,000 shares of common stock for $10.8 million to offset dilution from compensation programs.

Segment backlog at the Architectural Glass segment stood at $84.7 million in the third quarter, down from $90.7 million in second-quarter fiscal 2017. In the Architectural Framing Systems segment, backlog was $164.1 million, compared with $130.5 million in second-quarter fiscal 2017. Architectural Services’ segment backlog was $195.5 million, a dip from $236.1 million in second-quarter fiscal 2017.

Further, Apogee announced the acquisition of Sotawall Limited, a leading designer and fabricator of high-performance, unitized curtainwall systems for commercial construction projects in North America, for approximately $135 million. The buyout will expand Apogee’s geographic presence in Canada and the U.S., while adding unique curtainwall products to its offerings. The acquisition of this $100 million revenue business will add to its architectural framing systems segment and will also be accretive to Apogee’s earnings in fiscal 2018.

Outlook for Fiscal 2017 and Beyond

Apogee raised its earnings per share outlook for fiscal 2017 to $2.85–$2.95 from the previous guidance of $2.80–$2.90. The upbeat guidance came on the back of solid execution of strategies to improve operational performance, productivity and project selection. The company maintained its outlook for revenue growth of approximately 10% for fiscal 2017. However, this guidance does not include the impact of the Sotawall acquisition that will add approximately $15 million to fourth-quarter revenues at a break-even operating margin on account of purchase accounting costs.

The company anticipates delivering capital expenditures of approximately $70 million in fiscal 2017, as it is investing to enhance capabilities and productivity capacity. Gross margin is estimated to be approximately 26.7% and operating margin of approximately 11.5%.

Apogee expects mid-single digit U.S. commercial construction market growth in fiscal 2017 and 2018, as market activity, the Architecture Billings Index, office employment and office vacancy rates have witnessed positive momentum. With internal market visibility and external metrics showing positive signs, the company expects U.S. non-residential market to growth at least through fiscal 2020.

For the long term, the company believes to grow through expanding in new geographies, fresh products and markets along with robust backlog and bidding activity.

How have estimates been moving since then?

Following the release and in the last month, investors have witnessed an upward trend for estimates revision. There has been one revision higher for the current quarter.

VGM Scores

At this time, Apogee stock has an average Growth score of 'C', though it is lagging a lot on the momentum front with a score of 'F'. However, the stock was allocated a grade of 'C' on the value side, putting it in the middle 20% for this investment strategy.

Overall, stocks has an aggregte VGM score of 'D'. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Along with the estimates trending upward for the stock, the magnitude of the revision is positive. As a result, APOG carries a Zacks Rank # 1 (Strong Buy). We expect an above average return from the APOG shares in the next few months.

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